TORONTO, Ontario -
In what appears to be some good news for the Canadian vehicle finance industry, delinquencies on auto loans in Canada during the third quarter dipped “noticeably” compared to the same period of 2009 and were basically flat on a sequential basis, according to TransUnion’s analysis of auto lending and credit card trends.
Auto borrower debt showed its third straight quarter of gains, in the midst of automaker incentives spurring additional loans being written, the analysis highlighted.
Specifically, TransUnion pointed out that the third-quarter auto delinquency rate — which represents the percentage of accounts at least 90 days delinquent — was 0.11 percent, which is static from the second quarter. In the third quarter of 2009, the rate was 0.15 percent.
Auto borrower debt — which is the combined balances of an auto borrower’s vehicle loans — came in at an average of $16,183, up 6.9 percent sequentially and 9.8 percent year-over-year.
Meanwhile, auto loan credit limits averaged $28,154. This marked a 6.4-percent gain from the third quarter of 2009 and the fourth straight quarter of year-over-year growth. The 6.4-percent uptick was the most auto loan credit limits have climbed in more than three years, TransUnion revealed.
Offering some insight into these trends, TransUnion’s vice president of analytics and decisioning Thomas Higgins noted: “The relatively steady auto delinquency rate underscores the importance Canadians see in maintaining a positive relationship with their auto lender.
“We have seen due to the decline in both auto and credit card delinquencies in the past quarters that having a reliable form of transportation and some liquidity in the form or credit cards were important to consumers,” he added.
“With the large suburban population and the high commuter rates throughout Canada, having an auto is a necessity,” Higgins continued. “In addition, the rise in auto debt comes as no surprise as new loans came on the books due to the incentive offerings by automakers over the last couple of months.”
National, Regional Trends
Continuing on, company also culled out some overarching themes from the market data on both a national and regional basis.
The company discovered that there are 24.8 million credit-active consumers throughout the country, which is 0.15 percent higher than a year ago.
The average household debt among these consumers — not including mortgage — is $25,163, up 4.3 percent from the same period of 2009.
TransUnion noted that it saw a 4.3-percent year-over-year uptick in overall debt, which maintains the upward movement. However, the rate of increase during three most recent quarters has been more moderate and in the single digits.
Breaking it down provincially, the greatest uptick in overall debt was found in Quebec, where overall debt climbed to $102 billion (up 6.6 percent).
Conversely, the slightest gain was in Manitoba, where overall debt climbed 2.6 percent to $14.6 billion.
Next up, TransUnion looked at some of the reasons for overall debt climbing. The biggest factor was revolving loans, the company said.
These loans climbed 17.5 percent, with installment loans coming in at No. 2, up 8.3 percent.
The last time that lines of credit were not the top gainer was almost two years ago, officials pointed out. These types of loans were up 4.3 percent.
Moving along, TransUnion also pointed out that major delinquencies — the proportion of accounts 90 to 120 days past due — on all credit accounts showed a year-over-year decrease. Specifically, they indexed at 88 when put against the year-ago period. However, there was significant numbers derogatory accounts, which is the share commanded by accounts that are in collection, foreclosure, bankruptcy or are write-offs. These indexed at 124 compared to the third quarter of 2009.
“There continue to be positive signs in the credit market as Canadians slowly manage out of the recession,” Higgins shared. “Overall debt continued to grow, but at more modest rate (4.3 percent) compared to the double digit increases pre-recession, and the number of accounts being held by Canadians has been rationalized down 10 percent (to three per person) over the past year-and-a-half.
“The most positive sign has been the significant decrease in past due balances (outstanding debt that is at least 30 days past due) which has dropped 15 percent since last year after three years of increases,” he added.
Credit Card Analysis
Finally, TransUnion spotlighted some trends in the credit card market. The segment’s delinquency rate — which is determined by the proportion of accounts at least 90 days delinquent — was at 0.34 percent. This marked a 7.8-percent sequential decline and a 9.3-percent year-over-year drop.
Provincially, showing the highest delinquency rate was Prince Edward Island (0.61 percent). With a rate of 0.2 percent, Quebec was at the bottom.
Citing a survey that EKOS did for TransUnion, officials reported that more than three-fifths (61 percent) of consumers thought that the delinquency rate would be heavier on a year-over-year basis. This conflicts with the actual trend, so TransUnion suggested that this is “possibly indicating that Canadians are better managing their credit card debt than they believe.”
The average credit card borrower debt (which is determined by compiling what balance a credit card borrower has on each of his cards) was $3,709, compared to $3,614 in the second quarter. While marking the third straight sequential uptick, the third-quarter figure dipped 1.7 percent year-over-year.
Interestingly enough, the EKOS survey found that consumers are more “accurate” in their beliefs about credit card borrower debt. About three-quarters (74 percent) thought that there was an uptick in the national average credit card borrower debt. This reflects TransUnion’s data from the third quarter.
Almost nine out of 10 (or 87 percent) of that group of participants apparently believed average debt would climb by at least $250 over that time frame. The actual increase, however, was just $95.
Next up, TransUnion shared that the credit card penetration rate was 81.3 percent. This is the second straight quarter there has been a lift. Previously, there had been “sporadic declines” for close to two years.
Moreover, the company saw a 3.5-percent drop in the number of active credit cards, making this four quarters in a row that this figure has declined.
Since peaking at 1.9 in the first quarter of last year, the average number of credit cards that a Canadian credit-card user carries now came in at 1.75.
“In the third quarter, Canadians are continuing to effectively manage their credit card debt post recession. While the overall debt carried on cards increased for the third straight quarter, we are seeing some positive signs in the drop in the number of delinquent accounts,” Higgins explained.
“Typically, credit card debt increases through the holiday shopping season. It will be interesting to see if consumers continue to amass more debt during this holiday season and if delinquencies rise in the first quarter of 2011 when holiday bills are due,” he added. “In any event, credit card delinquency for the quarter remained well within historical norms and is not a cause for significant concern at this time.”